Dhanuka Agritech Limited (507717) Earnings Call Transcript & Summary

On behalf of Antique Stockbroking, I would like to welcome all the participants on the call of Dhanuka Agritech. From the management, we have Mr. MK Dhanuka, Managing Director; Mr. Harsh Dhanuka, Executive Director; and Mr. VK Bansal, CFO, on the call. Without further ado, I would like to hand over the call to Mr. Dhanuka for opening remarks, post which we will open the floor for Q&A. Thank you, and over to Mr. Dhanuka.

Thank you, Manish Ji. Good afternoon, ladies and gentlemen. I myself MK Dhanuka, Managing Director of Dhanuka Agritech Limited. Welcome to all of you. I hope all of you are doing well and keeping safe. Thank you very much for joining us in this Q3 FY '21/'22 results conference call of Dhanuka. I have with me Mr. Harsh Dhanuka, Executive Director of the company; and Mr. VK Bansal, CFO of the company. Dhanuka Agritech is a leading agrochemical company in India, focusing on branded seeds in the market. The company's strength lies in the manufacturing and marketing of formulated products. The product portfolio is a spread across insecticides, herbicides, fungicides and plant growth promoters. Dhanuka Agritech is working for transforming India through agriculture by working with farmers closely to improve their productivity and quality in turn, enhancing their income. We work in all major crops in India and have implemented the best-in-class technology to ensure a smooth and efficient supply chain. To service the diversity of Indian crops and needs of the farmers, the company has a wide range of products in its portfolio with over 80 brands in pack sizes ranging from 2 grams to 20 liters. These products are in various forms like liquid, powder and granules. Dhanuka have a PAN India presence through its marketing team and warehouses in all major states across India. With 3 manufacturing units, 40 warehouses and 14 branch offices across the India, we cater to around 6,500 distributors and dealers and around 80,000 retailers. Through this extensive network, Dhanuka reaches out to approximately 10 million Indian farmers with its products and services. Dhanuka has more than 1,000 techno-commercial staff, supported by a strong marketing team to promote and develop new products. Dhanuka's strong R&D division has world-class NABL accredited laboratory as well as an excellent team for new product registration and development. Dhanuka has international collaboration with 8 leading global agrochemical companies from the U.S., Japan and Europe, which helps us to introduce the latest technology in India. The government of India is taking several initiatives to enhance the role of agriculture in the growth of the Indian economy, such as increasing MSPs, eNAM portal, direct benefit transfers and PM-KISAN Nidhi. This is helping to create a robust foundation to enhance farmer's income and create wider adoption of high-quality seeds and judicious use of pesticides and fertilizers. In the budget announced yesterday, the government of India has given emphasis on promotion of drone for spray of insecticides in the farmer field as well as for increasing the pest attack at particular place so that the spray can happen only where the attack is there. So incidentally, Dhanuka has invested in a drone company, and this will basically help Dhanuka in times to come. In advance, we envisage that this drone business will flourish in India and Dhanuka has invested in a drone company. There was the adverse impact of the condition in the first half of the year, which has impacted the financials of H1 of the company. However, it was reversed from September and the conditions became favorable for consumption of agrochemicals. This has helped the company to recover its performance. Coming to the financial performance for Q3. Revenues from operations stood at INR 356.86 crores in Q3 of FY '21-'22 versus INR 295.66 crores in Q3 of FY 2021, representing an increase of 27%. EBITDA stood at INR 61.74 crores in Q3 of FY '21-22 versus INR 59.59 crores in Q3 of FY '20-21, up 3.61%. Profit after tax was at INR 42.51 crores in Q3 of FY '21-'22 versus INR 40.04 crores in Q3 of FY '20-21, up 6.17%. Coming to zone wise share of turnover for the quarter 3 of FY '21-22, the North zone contributed 21%, the East zone contributed 11%, West zone contributed 31% and South zone contributed 37%. Regarding project category-wise share turnover for Q3 FY '21-'22, insecticides contributed 32%, fungicides contributed 19%, herbicides contributed 36% and others, including PCR contributed 13%. The Board of Directors have declared 400% interim dividend that is INR 8 per equity share, having face value of INR 2 per share, which will absorb INR 37.28 crores. As discussed last time, the company is working on its greenfield project at Dahej, Gujarat as per scheduled plan. Friends, I am happy to inform you that CIBRC has approved 9(3) registration for a product Thiophanate Methyl plus Kasugamycin in its meeting held in December 2021. This product is developed jointly in partnership with Nippon Soda Company Limited Japan and M/s. Hokko Chemical Company Limited, Japan. Dhanuka will market this product under brand name [indiscernible] which will be mainly used in horticulture crops for control of powdery mildew. Further CIBRC has also approved a 9(3) registration for Halosulfuron Methyl + Atrazine in its is meeting held in January 2022. This product is developed in collaboration with Nissan Chemicals Japan. And Dhanuka will market this molecule under brand name [indiscernible]. It is a herbicide to be used in May crop. Friends, the third CIBRC has also approved a 9(3) situation for Etofenprox + Diafenthiuron in its meeting held in January 2022. This product is developed in collaboration with Mitsui Chemicals Ltd. Japan. We will market this molecule under the brand name [indiscernible] which will be used for control of thrips in cotton and chili. We are planning to launch all these 3 products in Q1 of FY '22-'23. As shared earlier, we have committed that Dhanuka will launch 2 9(3) molecules every year, and this will be the first time that Dhanuka will be launching 3 9(3) molecules in one quarter, which is a great achievement. The company has signed an MOU on 20th December 2021 with Govind Ballabh Pant Agricultural University and Technology, Pantnagar, to jointly conduct research in crop production chemicals and also signed one MoU with Chaudhary Charan Singh Haryana University, Hisar, for the same purpose. Dhanuka regularly organize various seminars, Krishak Goshtis, Sammelan to educate our farmers about new innovative techniques of farming. Being India's leading agrochemical company, we are at the forefront of introducing digital solutions and innovation, streamlining policies and collaborating with indigenous entities to boost the integration of technology across business segments. In the same endeavor, we have tried to boost our reach through online farmer interactions and aggressive use of TV advertisement for our key products, such as Sempra, Targa Super, Mycore, et cetera. We are focused on expanding our market coverage through our network of distributors and our digital platforms where we engage with the end consumer. We consider ourselves responsible towards securing the farmer's welfare and preserving food and nutrition security of the nation. We continue to strengthen our association with the farmer producer organization, Krishi Vigyan Kendra and other critical institutions to increase our business expertise and boost our market presence. And on this note, I would like to hand it over to the operator to enable us to take the question-and-answer session. Thank you very much.

[Operator Instructions] We have the first question from the line of Varshit Shah from Vito Capital.

First of all, congratulations at the sort of numbers given the environment in the market. So my first question is, if I look at your gross profit expansion of 14% and your ITI investment is actually lower Y-o-Y. So the reason the growth is coming from old molecules, but you have much better volumes. Is that the right way to understand in terms of flavor of the improvement of the business?

You see the growth has come by virtue of both. One is our new productions. That is Onekill and Tornado. And in Q3, largely growth is driven by herbicides.

Sure. So largely, it's come from more of legacy products. And hence, the ITI is lower, but they have got better volumes in our legacy products. That's the right way to conclude?

Yes. And ITI is lower because of one there more reason because there was no new product introduction in the year '18, '19. And when we calculate ITI, it' current year plus previous year.

Okay. Okay. Understood. And sir, second is my question on Q4. So if you see that there is some moderation in some technical prices across the board. But from a [indiscernible] perspective, channel filling might be tricky because prices may move down subsequently in Q1. So how are you approaching this tricky situation? I think this is true for every player in the industry, but at least how do you plan to tackle this and some update on Dahej project when you plan to start Phase 1.

You see, you are right at a place. Normally, we are not replacing material aggressively in the Q4 for the next financial year. But yes, you are right. The prices are now is basically of -- in some of the molecules are on very high stage. It is very difficult to sustain on that level. So we are basically procuring few of the molecules very cautiously. And I hope the price will basically improve in the beginning of the March, which we start in the beginning of March.

So just to add to that, do you think that probably your Q4 wholesale sales might be lower than last year and probably it might shift to Q1? Is there a possibility at least, of course, nobody knows it, but from a possibility perspective.

I think because we are not placing the material of generics in the Q4 every year. Therefore, there is no chance to our understanding. So there should be reasonable growth in Q4 as well.

Okay, sir. And lastly, sir, update on Dahej project, I mean, in terms of timelines, is there any change in timelines?

There is no significant change in timeline. As we have given our estimate, see our production will start in the FY '22, '23 in the end. But normally, revenue will come in the '23, '24.

We have the next question from the line of Bharat Gupta from Edelweiss Securities.

Sir, a couple of questions from my side. So first, definitely in the Q3 performance. So definitely a strong top line growth. I just want to get a sense what you see in the volume metric growth during the quarter?

During the quarter, volume growth was 18%.

Right. And sir, subsequently, we have taken pricing hikes, right, during the middle of the quarter itself.

Yes, partly not fully.

Okay. And sir, secondly, like we have taken -- you can say, we are introducing 3 9(3) products. So what kind of a growth potential are we envisaging? And these are our exclusive products for which we have 9(3) registration, right?

Yes. All these 3 products -- 9(3) products, we have the exclusivity with us. And we are expecting a revenue of about INR 50 crores from these products in the next 3 to 4 years.

Okay, sir. And sir, I just wanted to get more sense on the drone business, particularly. What kind of investments we have made in this business? And like can you share some colours about how this -- how we are trying to differentiate with respect to the other competitors who are already paying out there in this particular field?

No. We are basically invested in a start-up. To begin with, we have made a commitment of investment of INR 30 crores. Out of that, we have invested already INR 20 crores.

Right, sir. And sir, earlier also some couple of players who enter into this business. So like in terms of our differentiation, like how are you seeing this kind of opportunity coming in place? And what kind of a growth potential are you looking at in terms of the drone, like what kind of a outlook do you have in mind with respect to this business?

Globally, the pesticide spray are happening through drones. While in India, the sprays are being done manually by keeping the drum on the back of the labor. So that is not good for the health of the labor who is doing the spray in the field manually. So now the drone technology, which is used world over will come to India gradually, and the drones will take the sizable business of spraying in the field. Apart from this, the drone has the facility of camera being installed in the drone and it takes the photograph of the field and there is computerized programming from which it can be known that exactly at which place in the farm, the pest attack is there and the spray can happen at that particular place. So that way, the labor cost will be basically saved by using drones. And there will be uniform spray throughout the field, and we will save the cost of the pesticide also because only spray will happen, where the problem is there, not on the whole field. So these will be the saving on the part of the farmer, which will help in increasing its income.

Right, sir. And just a last question from my side, like pertaining to the unseasonal rains which we have seen in most parts of the country, particularly towards the end of December and first week of January. Just to get a sense, is there any like disruption in terms of the demand which we are getting out from the Rabi or how do you see Q4 panning out for us?

Yes, of course, the late rains and the cyclones towards the end of November and beginning of December did impact the business, especially in the South and the East zone. And there was a lot of crop damage in South zone with respect to paddy and chili. And in East zone with respect to potato, which are the important Rabi crop for these regions and the business did get impacted in Q4 -- in Q3 for these crops. And in Q4 also, there might be some impact in these regions.

Right, sir. But we are confident in delivering the volumetric growth during the quarter?

Yes, we are definitely expecting double-digit growth even in the fourth quarter.

[Operator Instructions] We have the next question from the line of Prashant Biyani from Elara Capital.

Sir, how has been the liquidation in Q3 and January -- in January month?

The liquidation because we are not making any placement in the market, so whatever supplies are made by Dhanuka, they are liquidated in the market. And because the distributor does not keep the inventory themselves if the season is over and the product remains unsold, that is being returned back to the company. So there is no inventory piled up in the market. And in January, due to some unseasonal rains, definitely, the consumption has impacted to some extent. But we are confident to deliver double-digit growth in quarter 4 also. And we do hope that the February and March will be good months for Rabi season, and we will be able to get the desired volumes.

Sure. And secondly, sir, the extended and colder winter, is it good from agrochemical consumption point of view? Or it would be adverse for us as an industry?

I don't see any adverse or positive impact of this extended cold spell. Although from the farmer perspective, especially for the wheat farmers, it is very helpful to increase their output and the yield. So whatever the losses might have been there in the -- because of the rains in the December, Rabi farmers in North and Central India, I think they would be able to recover with this extended cold spell and they will have good money in their pocket for the coming next Kharif season, which will help consumption in the next financial year.

Right. And sir, the initial rains in South, that has delayed the season or that has made some sort of permanent damage for this Rabi season? I mean could that still be spilled over in Q4?

No, we don't foresee much of the phase of Q3 moving into Q4 because of the rains. So besides the rains, there was a pest outbreak as well in South India in chili crop of black thrips which impacted the application of several products in the crop. And chili is a very important export-oriented crop, which is a good face for Dhanuka products and for the industry in general. So that got impacted severely in the Q3. And we don't see this being recovered in Q4.

We have the next question from the line of Dhruv Muchhal from HDFC AMC.

Sir, the question was we see some margin pressure -- EBITDA margin pressure from year-on-year or quarter-on-quarter basis. And this is despite your volume growth is quite strong, 18% volume growth. Earlier, I thought it's because of pricing so that absolute number is more relevant, but it seems, despite the volume growth, the margin has come down a bit. And if we understand correctly, a larger portion of your business is more of specialty where the global raw material price fluctuation does not impact you much because the technical suppliers are generally fixed in nature. So the impact on margins, then is it because of the generic portfolio, which is getting significantly impacted? Or probably you are focusing more on market share gain and hence, the margin pressure?

No, it is mainly because of generic. The increase was very steep in Q3. And we could not keep pass on because of the lot of inventory were available in the system because of the bad season in Q2. Because of which it is impacted and because of the impact of the gross margin, EBITDA is impacted.

Got it. So it's time to -- the understanding is right, the generic is primary, the specialty should broadly be similar?

That's right. Yes, absolutely.

Okay. And sir, if you can probably comment on, say, for example, if the price increase for cost -- for the generic cost increase for you, say, x, how much of -- say is INR 10, how much of the price increase have you already taken? And how much is remaining for the remaining for the next quarters?

Yes. You see -- there are 2 parts of it. One, there is a delay in the passing over of the increase. Secondly, if the increase is INR 10, we couldn't pass on first stage say INR 2 and the second stage again, INR 2 to INR 3. So in few molecules, it's still 50% is spending. And a few of the molecules is around 70% is passed on, 25% is pending. And in a few molecules, we have been able to pass on 100%.

Okay. Got it. So the next quarter should be relatively better as you pass on the remaining portion? There's still some ...

It appears difficult because now we're in the month of February. Even in January, because this time, the problem is that is still a lot of inventory available in the system. So we're fully passing on very difficult because the increase is so steep. Farmer is looking for the change. For example price have increased like anything, like anything. We cannot procure the new raw material for supplying the -- low, under the brand movement. So there is a good problem in a few of the molecules.

We have the next question from the line of Rohit Nagraj from Emkay Global.

Congrats on a good seed. Sir, what was the volume growth for 9 months for this quarter? You indicated 18% for 9 months.

9 month is around 1.85%.

So hardly couple of percent. I mean half by volume growth and half by pricing growth.

Lower in the volume.

Right. Fair enough. Sir, the second question is on the channel inventory. So you indicated that the channel inventories are currently higher. And that's predominantly, I suppose, is for the other manufacturers and not for Dhanuka.

Yes, that's right.

Okay. So we will be keeping the inventories only to the tune of the sign that will be placed in the market and will not flood the market with inventory in Q4?

Yes, absolutely. In our case, distributor having a normal inventory, which normally we are having every year.

Correct. And sir, in Q3, was there any impact due to unavailability of materials from China?

No. The availability has not an issue, but the prices was the issue, where the increase in the prices was to the extent of even more than 100%. For example, glyphosate, for example paraquat, pendimethalin, imidacloprid. All the products, the price increase was to the extent of more than 100%, which is not acceptable to the farmers. So the farmers are shifting to other products in instead of using these products. So because of the price increase, the sales volumes of these molecules has impacted. But the availability was in 1 or 2 products, it may be. But in general, there was no availability question.

All right, sir. Got that. Sir, given that in 9 months, we have done top line growth of about 4% and EBITDA is actually a 3% decline, given the Q4 volume growth that we are looking at in double digit, would our FY '22 EBITDA will be flattish on a Y-o-Y basis? Or we still may have some decline on Y-o-Y basis?

Definitely, there will be a decline in Y-o-Y basis. Year 2021 was a exceptional year. And gross margin is highest in the Q4 of the last year. This year, there is [indiscernible] so I'm expecting EBITDA to the range of around 18% in the FY '22.

Right. And in FY '23, what are we expecting in terms of the volume growth and EBITDA margin?

It is slightly a little comment because you see we are dependent on monsoon. If the monsoon is good, we are very much sure our growth must be in double digit. And the growth in double digits, then EBITDA should be improved upon the next financial year.

Right, got it. And on the Dahej expansion, if I'm right, we have indicated that our formulation plant in Phase 1 will be ready by March '22. And then the rest of the plants will be coming by March '23. So is the understanding right? Or is there some change in that?

Your understanding, you're absolutely right, but we got an extension of one year, but therefore, we'll start our production by March '23.

So effectively, in FY '23, there will not be any contribution from Dahej project.

That's right.

Right. However, in terms of CapEx, by March '22, we will be investing about INR 80 crores and by March '23, another INR 130 crores that particular CapEx outlook remains the same, right?

Overall CapEx will remain the same. But in the year FY '22, the CapEx would be in the range of around INR 50 crores, right, and next year, it should be around INR 130 crores.

We have the next question from the line of Varshit Shah from Vito Capital.

Sir, given that we have the revised CapEx spend you have alluded and we have already set an interim dividend of INR 8. Do we envisage where our cash payout to shareholders might further increase in the next year given that you have strong cash flow is already in place?

Dhanuka is having the dividend payout policy of minimum 25%, but it depends on the Board. We may consider if the Board approves a higher payout to the shareholders in the next Board meeting.

Sure, sir. That's very helpful. And sir, my last question is given that we have actually survived the bad year of 2022 in terms of growth, one of the high base, do you expect that given that the generic prices have gone up significantly, our specialty portfolio should have more flip at least in going into FY '23 because the price differentials in some of the alternatives actually have reduced by more than 25%. So is it something which you can actually push more of specialty products in '23? And my second -- I have one follow-up also on that.

Actually, farmers use both kind of products, specialty as well as generic. There are small land holdings and the small farmers, they use the generic products and the progressive farmers use the specialty and costly molecules. So both kind of farmers are available in India. We have more than 13 crores of the farmers. So both generics will be prevailing as well as the specialty will continue to prevail in the market. We are definitely -- generic prices are higher at present, but we do hope that after the Winter Olympics in China is over, the situation will change and the prices will start reducing. And they -- I don't foresee that they will come to the previous level. But definitely, there will be a correction in the generic prices after the Winter Olympics in China.

Sure. And sir, my another question is on the plant growth in the PGR category. We had done very well in actually Q2 because of the shortage of fertilizer and high percent of fertilizers. And that seems to have an interesting portfolio. So my channel Mycore indicate that you have done well even in Q3 as well. Can you just throw some light on exactly -- I think Rahul Ji was alluding in the previous quarter, how aggressive we are on that space? And do you see that growth sustainable going into FY '23 as well, assuming that fertilizes prices and supply normalized to sustain these levels?

One of the molecule Mycore, we have introduced in technical collaboration with Agrinos which is a multinational company. So this product is doing very well, and we have doubled our turnover in this year in comparison to the last year for Mycore. And we do hope that in next year also, we will be increasing our volumes for Mycore. The other PGR, they are stable. We are not able to have much growth in the other PGRs like Dhanzyme et cetera.

And to add to that, I would just like to inform that the government has come up with new guidelines where all these products like our brands Dhanvarsha, Dhanzyme, they will be covered under the SEO and we have already invested in this year, a substantial amount to do all the efficacy trials along with the Agriculture University and generating all the data so that our all these products Dhanzyme Granule, Dhanzyme Gold, Dhanvarsha they will be covered under the SEO. And in future, we will not face as much problem in selling these products. As right now, they face certain issues in some of the states.

Sure. So my question was specifically more on Mycore because you've done extremely well. So you think you can sustain or even grow in FY '23 specifically to Mycore, at least?

Yes, absolutely.

[Operator Instructions] We have the next question from the line of Prashant Biyani from Elara Capital.

Sir, what would be the share of generic -- sorry, specialty molecule revenue in quarter 3?

Quarter 3 is around 60% specialty, 40% generic.

And how much would be the growth in specialty molecules in Q3?

Growth in the specialty molecule is generally not a significant difference, they're almost similar.

Sir, is it that a generic molecule portfolio would broadly be loss-making in this quarter? I mean, even though we don't bifurcate segment-wise, but just an observation.

No, it is not loss-making because you see we are having the inventory -- old inventory in the system as well. But just there margin has reduced significantly, margins are eroded but not loss making provision at all.

We have the next question from the line of Saurabh Kapadia from AMSEC.

Just from your 3 new products launch of next year. So you mentioned the peak potential avenue of INR 50 crores?

So not the peak potential. This is the potential that we are talking in the next 3 to 4 years. Of course, for a new product, it takes some time to take the message to the farmers across India. So in future, the peak potential may be double of it.

But for all the 3 combined products, right?

Yes, yes, all 3 combined.

Okay. And what is the point of exclusivity for all these products?

Minimum 5 years.

Okay. And sir, just one more question on this, your investment in ITI world. So by when you are planning to use the drone technology to provide services to farmer? Or how we should look in terms of your investment in this company?

It is just an investment in a startup company.

So at least for next 1, 1.5 years, we don't see any meaningful tie-up with that and using -- providing services to farmer for spraying the pesticides?

That is all together the question. We can definitely use drones for providing services to the farmers, that is only -- it is very easy -- early to comment. It is under consideration. But it has nothing to do with the drone investment. Investment in a start-up. For now the government has allowed the spray of insecticide through drone. So now that opportunity has arisen. It is before us, in front of us and every company.

And government is giving subsidy on purchase of drones to the societies. So this will help in basically increasing the usage of drones by the societies and FCOs.

Okay. So do you see the possibility of using the more mechanization, then there will be more demand for the specialized product and your generic products, demand will maybe -- volume will maybe segment and specialized product demand will go up?

Possibility is there.

Okay. And Sir, lastly, on the -- any cost escalation in new projects because we have heard many companies are talking about cost escalation in the -- because of the logistics issues and also is in Dhanuka?

Could you repeat your question? I could not get you.

So the CapEx and any cost escalation as compared to the estimates?

Cost escalation in the Dahej project you are talking?

Yes.

It will be too early because right now, we have not made much investment, and we don't foresee -- we have kept 10% to 15% in contingencies. So we do hope that we will be able to manage within the contingency plan. But if any escalation will happen, we will come to know after certain period of time, once the project takes more shape.

Just to add that easy as per our current estimates, I think we are -- we must be able to manage within our budget because we have already planned such contingencies.

We have the next question from the line of Rohit Nagraj from Emkay Global.

Sir, did we see any working capital stress during the quarter?

Yes. Definitely end term is increased by 6 days, excluding the current investment, it has increased from 102 days to 108 days.

But we don't foresee any bad debts from, this is just from dollars.

Yes. Rupees.

Correct. And the second question is in terms of the collaborations or MOUs that we have signed. Any specific projects that we will be working on with those universities or any particular area of the agro chemicals that we will be working on?

Yes. These MOUs that we are signing with the universities, several of them are focused around the application of specific to drones. So we are trying to do a lot of research on drone application because the water volume is less. So we need to be very careful about the -- any crop damage with drone applications. So these are the areas where we are tying up with the universities as well as for the trial of new product for Dhanuka for various crops and diseases.

Right. Got it. And just one last clarification on the biologicals. We have indicated that we will also be given the traction that is seen not only in the Western world, but in India as well. What are the stretch back we will be taking in FY '23 to tap this particular opportunity?

Yes. So we are looking at -- we have already done some market research, and we are looking up at appointing a separate team for biological division. It appears to be a very positive opportunity going in the future. However, the initial growth is quite slow in India due to a lot of biological products in India, we marketed are actually spurious products. So it's a very challenging space to enter in the market. But definitely, the 2 biologicals, microbials, this is a very exciting space for the future, and we are looking at market entry strategy for this segment.

Right. Got it. Sir, so just one last clarification. Given that Dhanuka has been very vocal on these serious products. Anything that has been coming from the government in terms of how to tackle this issue for any material steps that have been taken by the government?

Mr. R, G. Agarwal who is the Chairman of the company, is also Chairman of the committee of FICCI or AGRO chemicals. And as he is Chairman of the Committee, so he happens to meet to the government officials at senior level, secretary level, joint secretary level, et cetera, in the government on FICCI platform. So he is taking up this issue because the farmers are being impacted because they don't know what is genuine and what is spurious. They pay for the genuine product and get the spurious materials. So which is basically very harmful for our poor farming community. They are being cheated by some of these unwanted basically people. So he is taking up this issue and some action has been taken by the government like this QR code is made mandatory on every product so that it will be easy to identify whether the product is genuine or not. So that QR code is making mandatory by the government. So this is one initiative taken by the government to stop this menance of the spurious pesticides.

We have the next question from the line of Bhavya Gandhi from Dalal & Broacha.

Sir, as I understand, we are more of a domestic player. And right now, you see there is a resurgency in global demand for agrochemicals. We don't want to tap this market like are we focusing on exports?

Dhanuka is purely a brand sales company. We are in formulations only. We are not manufacturing technicals. Now we have started work on our Dahej project, where we will be going for backward integration that is manufacturing of technical grade pesticides. The exports are mainly happening for technical grade pesticides, not for the formulation. So there was a very little opportunity available for formulation for export. While once we will enter into technical manufacturing, definitely, there will be opportunity available for exports. And you are absolutely right that exports are increasing much more in comparison to the domestic consumption. Because of this China issue, the companies want to have one more reliable source, and India seems to be more reliable in comparison to China. So the eyes are on India and the government is also supporting Make In India concept, and a lot of investments are happening in India, and we do hope that the capacities for technical manufacturing will increase in next 2 to 3 years. And there will -- Dhanuka will be also in exports once we enter into the technical.

Right. But for the technicals, a lot of registrations globally, right, even if you -- but any registrations in pipeline for export market?

Not right now. There are some countries where export registrations are not required undeveloped nations like African countries, et cetera, but developed nations, definitely, the registrations are required. And once we have the technical factory plant ready only then it will be -- basically, we will be able to get the registration for exports in those countries.

Okay. And sir, you mentioned that glyphosate [Technical Difficulty]. So what are those substitutes. Can your name them?

Your voice was breaking. Question is not clear to me.

Substitute was, say, for example, in glyphosate 1 substitute.

Another substitute was glufosinate, which is being shown by only 1 or 2 companies in India as of now and they got good advantage because of that.

We have the next question from the line of Anandha Padmanabhan from PGIM India Mutual Fund.

Sir, government has been quite vocal about chemical-free farming and organic farming, 0-budget farming. And even in yesterday's budget, they had spoken about taking some 5-kilometer -- so they have spoken about taking 5-kilometer path along Ganga and first stage for promotion of chemical free farming. So over the medium to longer term, do you think that could be a big risk to this sector? Could this particular focus of government be big risk to the sector?

Yes. So I think government has been talking about natural farming or chemical-free farming for a long time. And if we see the bigger picture, it is definitely not a sustainable mode of agriculture on large scale. Example, Sri Lanka last year, we know went suddenly, overnight to completely chemical-free farming, and they had severe impact on their economy where the crop prices shot up very sharply. And they had to revert their decision within, I think, 3 months or 4 months after taking such a decision. So it is definitely not a long-term prospect to completely shift all the agriculture. However, definitely, there will be space for organic farming or as they say 0 budget farming or national farming. It will create its space, but we don't see it becoming a mainstream form of agriculture.

If someone is ill, he has an option to go to homeopathic doctor, allopathic doctor and ayurvedic. So most of the people are basically opting the allopathic medicines because the treatment from the ayurvedic and of allopathic is slow, it takes time. So when there is fast attack in the field, farmers go for the insecticide to stay, to safeguard the crop from pests and disease. Globally, less than 1% area is under organic farming. We are not against organic farming, but the cost of the farming goes very high, and the Indian population, they will not be able to afford. Only the elite class in the big cities, they will be able to afford such organic farming, otherwise, the general public cannot afford. So definitely organic farming government wants to promote. But ultimately, without the users of chemical fertilizer and pesticides, sustainable agriculture and growth is not possible. We are adding one of in our formulation every year. And our agriculture land is shrinking because of the industrialization and urbanization. The biggest challenge is how to feed this increasing population with a lesser land. The only alternate is to increase the productivity. And for increasing the productivity, we need chemical fertilizer and pesticides. And in India, we are consuming one of the lowest pesticides in the world. So there is a huge opportunity for this industry to go by more uses of pesticides.

As there are no further questions, I would now like to hand the conference over to Mr. Manish Mahawar for closing comments.

Thank you, Mike. On behalf of Antique Stockbroking, I would like to thank the team of Dhanuka Agritech for providing us an opportunity to host the call. Dhanuka Ji, would you like to make a closing comment?

Yes, one minute. To summarize at last, Dhanuka continues to demonstrate our ability to overcome challenges and emerge stronger despite uncertain business environment. We will aggressively roll out new formulations in the upcoming quarters and would ensure that it reaches to the consumers. I reassure our shareholders that we are committed to the task of transforming India, the landscape of agriculture in India and will play an integral role in rewriting the future of a better and new India. We do hope that in fourth quarter also, we will have minimum double-digit growth and Rabi is expected to be good because of the moisture in the soil and the reserves are full of water so irrigation is not a challenge for the farmer. And when irrigation is certain, farmer basically opt for the swing and we are confident that we will be able to deliver double-digit growth in quarter 4. Thank you very much.